April 5 (Bloomberg) -- Federal Reserve Chairman Ben S.
Bernanke said policy makers must watch inflation “extremely
closely” for evidence that rising commodity costs are having
more than a temporary impact on consumer prices.

“So long as inflation expectations remain stable and well
anchored” and the rise in commodity prices slows, as he’s
forecasting, then “the increase in inflation will be
transitory,” Bernanke said yesterday in response to audience
questions after a speech in Stone Mountain, Georgia.

“We have to monitor inflation and inflation expectations
extremely closely because if my assumptions prove not to be
correct, then we would certainly have to respond to that and
ensure that we maintain price stability,” he said.

The dollar rose against the euro and yen after the comments,
which are similar to both Bernanke’s congressional testimony and
the statement from the policy-setting Federal Open Market
Committee last month. He told lawmakers March 1 that Fed
officials “continue to monitor these developments closely and
are prepared to respond as necessary,” while the FOMC said on
March 15 that it “will pay close attention to the evolution of
inflation and inflation expectations.”

The dollar rose to 84.36 yen at 10:11 a.m. in Tokyo from
84.06 yesterday after earlier touching 84.49. Against the euro,
the dollar strengthened to $1.4199 from $1.4221.

Responding to another question yesterday about housing,
Bernanke said that the Fed expects a “very high rate” of
foreclosures this year, which harms home prices and construction
and creates a drag on the recovery, which he said is “not as
strong as we would like it to be.”

Price Gauge

The Commerce Department reported last week that the Fed’s
preferred price gauge, the personal consumption expenditures
index, excluding food and energy, increased 0.9 percent in
February from a year earlier. Including all items, prices rose
1.6 percent, compared with a 1.2 percent 12-month increase
through January.

Fed officials aim for annual inflation in the long run of
1.6 percent to 2 percent.

Bernanke, in his response yesterday, acknowledged gains in
prices of commodities including metals, grains and energy. The
national average price of gasoline rose to $3.55 on March 15
from $3.07 on January 1. Gasoline rose further after the Fed’s
meeting to $3.66 on Apr. 3.

The FOMC, led by Bernanke, said after its last meeting that
the economy is on a “firmer footing” and affirmed plans to buy
$600 billion of Treasuries through June. Bernanke hasn’t said
what he favors as the next move for monetary policy after that.

Close to Zero

The Fed has kept its benchmark interest rate close to zero
since December 2008 and last month reiterated it would remain
there for an “extended period.”

Even so, some policy makers who have broken with Bernanke
before are discussing the need to tighten credit. Philadelphia
Fed President Charles Plosser, who dissented twice from
decisions to lower borrowing costs in 2008, said April 1 in
Harrisburg, Pennsylvania, that an increase in growth or
inflation expectations may “suggest that it is time to begin
taking our foot off the accelerator and start heading for the
exit ramp.”

While Bernanke’s “remarks echoed the vigilance on
inflation expectations that was present in the last meeting
statement, it was certainly less hawkish” than recent comments
from some regional Fed presidents, Michael Feroli, chief U.S.
economist at JPMorgan Chase & Co. in New York, said in a
research note.

Didn’t Discuss Policy

Bernanke wasn’t asked about and didn’t discuss interest
rates. New York Fed President William Dudley, the FOMC’s vice
chairman, said April 1 that faster-than-expected payroll growth
in March shouldn’t alter the central bank’s bond-buying program
to prop up the recovery. “I don’t see any reason to pull back
from that yet,” Dudley said to reporters after a speech in San
Juan, Puerto Rico.

Dudley also said that “provided commodity prices level off
around current levels, the effect on inflation should be
transitory. But we will need to ensure that commodity-price
pressures do not cause inflation expectations to become
unmoored.”

Bernanke’s prepared remarks focused on regulation of
clearinghouses for financial trading. Bernanke said the U.S.
should subject such institutions to “strong” risk-management
oversight to minimize the chance they’ll require emergency
government aid.

Fed officials are “nervous” about inflation, including
food and energy prices, said Jason Schenker, an economist who
attended Bernanke’s speech.

“Everything is dependent, truly, on what happens with
commodity prices,” Schenker, president of Prestige Economics
LLC in Austin, Texas, said after Bernanke spoke. “If they
remain very high, this is tough.”